Fantasy Cruise Lines
On January 1, Year 1, the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method.
-Refer to the figure Fantasy Cruise Lines.What will the book value of the ship be after 10 years?

Question

Quizplus · Accepted Answer

The double-declining-balance method depreciates an asset at a faster rate than straight-line depreciation, which means that the book value will be reduced more quickly. The annual depreciation expense can be calculated as: 
Year 1: ($1,000,000 / 10) x 2 = $200,000
Year 2: ($800,000 / 10) x 2 = $160,000
Year 3: ($640,000 / 10) x 2 = $128,000
Year 4: ($512,000 / 10) x 2 = $102,400
Year 5: ($409,600 / 10) x 2 = $81,920
Year 6: ($327,680 / 10) x 2 = $65,536
Year 7: ($262,144 / 10) x 2 = $52,429.20
Year 8: ($209,715.20 / 10) x 2 = $41,943.04
Year 9: ($167,772.16 / 10) x 2 = $33,554.43
Year 10: ($134,217.73 / 10) x 2 = $26,843.55

Adding up the annual depreciation expense for each year gives a total depreciation of $1,000,000 - $100,000 = $900,000. Therefore, the book value of the ship after 10 years will be $1,000,000 - $900,000 = $100,000.

Fantasy Cruise Lines On January 1, Year 1, the Company Purchased a Ship